Incidents:

The company announced the 2023 Annual Report.

Comment:

The recovery in terminal demand combined with the release of production capacity, and the company's revenue reached a new high in 2023. In 2023, the company achieved revenue of 2,481 billion yuan, +22.30% year-on-year; realized net profit of 121 million yuan, -291.09% year-on-year. Looking at a single quarter, 2023Q4 achieved revenue of 652 million yuan, +33.95% year-on-month, and +3.67% month-on-month; realized net profit of 44 million yuan, -147.30% year-on-year, and -15.26% month-on-month.

Along with terminal inventory being eliminated one after another and downstream demand picked up, the company released production capacity and accurately grasped market demand. Production and sales of high-end products were booming, and the company's revenue reached a record high in 2023.

Benefiting from cost-side improvements and refined management, the company's profitability continues to improve. In 2023, the company achieved gross profit margin of 10.44%, +1.33pct year on year; net profit margin was 4.88%, +8.01pct year on year.

Looking at a single quarter, 2023Q4's gross margin was 12.11%, +11.59pct year on year, +2.42pct month on month; the company's net margin was 6.75%, +25.88pct year on year, -1.51 pct month-on-month. In 2023, the company's sales expense ratio, management expense ratio, and R&D expense ratio were 0.61%, 1.94%, and 5.21%, respectively, -0.17pct, -0.39pct, and -1.36pct, year-on-year, respectively.

The fixed increase was successfully released, and Mini LED production capacity continued to increase. In the field of Mini backlighting, the company successfully solved technical problems such as high temperature and high humidity aging failure of Mini high voltage backlight products by introducing atomic layer deposition equipment, optimizing deep corrosion processes, and independently developing innovative insulation layer optimization treatment processes, and successfully entered the terminal market of well-known brands. In 2023, the company raised about 1,082 million yuan in net capital through fixed increases. It is intended to be used for Mini/Micro LED chip development and manufacturing expansion. After completion of the project, it will generate an annual production capacity of 7.2 million Mini LED chips.

Laying out the high-end LED field, the product structure is expected to continue to improve. In the field of plant lighting, the company has developed an ultra-high light-efficiency silver mirror flip chip, which has been certified by many customers, and will gradually increase its quantity.

In the field of micro LED, maintain close cooperation with leading domestic and foreign companies to improve technical reserves. In the field of automotive lighting, through technological iteration, the brightness and reliability of the product have been further improved, and the market share continues to increase. As technology continues to innovate and accumulate, the company's products will further advance into the forward assembly market. At present, the company's high-end LED chips are at the domestic first-line level.

Profit forecast: We expect the company's net profit to be 1.772/222/264 million yuan for 2024/2025/2026, respectively, corresponding to the January 31 PE share price of 38/30/25 times, respectively, to maintain a “buy” rating.

Risk warning: R&D falls short of expectations, mini LED emissions fall short of expectations, industry competition intensifies.